Final Notice

On , the Financial Conduct Authority issued a Final Notice to Kristo Käärmann
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FINAL NOTICE

Individual
Reference
Number:
KXK01525

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby imposes on Kristo

Käärmann (“Mr Käärmann") a financial penalty of £350,000 pursuant to section

66 of the Financial Services and Markets Act 2000 (“the Act”).

1.2
Mr Käärmann agreed to resolve this matter and qualified for a 30% (stage 1)

discount under the Authority’s executive settlement procedures. Were it not for

this discount, the Authority would have imposed a financial penalty of £500,000

on Mr Käärmann.

2.
SUMMARY OF REASONS

2.1.
The Authority considers that, between 7 February 2021 and 28 September 2021

(“the Relevant Period”), Mr Käärmann failed to ensure that the Authority was

notified of relevant information relating to a significant financial penalty imposed

on him by HMRC, which included a determination by HMRC that Mr Käärmann had

deliberately failed to notify it of Capital Gains Tax (“CGT”) he was obliged to pay

on a large share disposal in 2017.

2.2.
During the Relevant Period, Mr Käärmann was the Chief Executive Officer (“CEO”)

and a director of Wise Assets UK Ltd (“WAUK”), a firm authorised under Part 4A

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of the Act, where he held the SMF1 (Chief Executive) and the SMF3 (Executive

Director) senior manager roles. He was also a director of Wise Payments Limited

(“WPL”), an Authorised Electronic Money Institution (“AEMI”) regulated by the

Authority. Both firms form part of the Wise group.

2.3.
On 29 September 2017, Mr Käärmann made a share disposal of approximately

$10m (“the Share Disposal”). This gave rise to a significant CGT liability of

£720,425.80. Mr Käärmann failed to declare the Share Disposal to HMRC and pay

the resulting CGT within the prescribed time period.

2.4.
On 25 June 2020, HMRC wrote to Mr Käärmann informing him that because he

had failed to notify it of the CGT, it was conducting a compliance check into his

tax affairs. As part of this, Mr Käärmann was asked to provide an explanation as

to why he had failed to declare the CGT on time. He was also warned that he

might be issued with a financial penalty and could subsequently have his name

added to HMRC’s public list of deliberate tax defaulters (“the Defaulters List”). Mr

Käärmann was aware of this at the time but did not respond to it.

2.5.
Subsequently, on 18 November 2020, HMRC sent a letter informing Mr Käärmann

that it intended to impose on him a financial penalty amounting to £365,651.21

(“the HMRC Penalty”). The level of the penalty was based on a determination that

HMRC considered Mr Käärmann to have deliberately failed to disclose the Share

Disposal and pay the CGT liability when due (i.e. that he was a deliberate tax

defaulter). This HMRC correspondence contained further details informing Mr

Käärmann that he might be added to the Defaulters List. Mr Käärmann did not

open the letter at the time.

2.6.
On 24 December 2020, HMRC issued Mr Käärmann with a ‘Notice to Pay’ letter

informing him that it had imposed the HMRC Penalty as proposed in its letter of

18 November 2020. Mr Käärmann was given one month to pay the HMRC Penalty

and was informed in this letter of his right to appeal. Mr Käärmann did not open

the letter at the time, however, due to absence abroad.

2.7.
On 6 February 2021, Mr Käärmann returned from two months’ abroad and opened

the two previously unopened letters from HMRC dated 18 November 2020 and 24

December 2020. Upon becoming aware of the HMRC Penalty from that

correspondence, Mr Käärmann immediately arranged for payment from 7

February 2021.

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2.8.
Therefore, by 7 February 2021, Mr Käärmann was aware of the HMRC Penalty and

relevant correspondence concerning the same. Despite this, Mr Käärmann failed

to bring to the Authority’s attention any details of HMRC’s determination that he

was a deliberate tax defaulter, including the resulting HMRC Penalty, the

possibility that he could be added to the Defaulters List as a result, or the relevant

circumstances surrounding the above issues (collectively, the “tax issues”).

2.9.
On 22 September 2021, HMRC added Mr Käärmann to the Defaulters List, having

determined that his deliberate failure to declare the CGT on the Share Disposal

had met the applicable threshold for publication.

2.10.
On 27 September 2021, the Authority became aware of the tax issues having

been contacted by a journalist for comment. The Authority contacted Wise asking

for further details. The following day, Mr Käärmann notified the Authority that he

had been added to the Defaulters List.

2.11.
Accordingly, between 7 February 2021 and 28 September 2021, Mr Käärmann

failed to notify the Authority (or otherwise ensure WAUK and WPL notified the

Authority) of the tax issues, despite being aware of them for some 7 months. The

Authority expected to be notified of the tax issues for the following reasons:

a) An adverse finding had been made against Mr Käärmann by another statutory

/ regulatory body, namely HMRC. The nature of HMRC’s determination, the

fact that it was a deliberate tax default, the significant size of the resulting

HMRC Penalty, and the potential for public censure via inclusion on the

Defaulters List meant the tax issues fell for disclosure to the Authority. This

is in accordance with the Authority’s Fit and Proper guidance (“FIT”). The tax

issues were relevant and significant to the Authority’s real time assessment

of Mr Käärmann’s fitness and propriety to perform his senior manager role at

WAUK, as well as his senior role as director at WPL; and

b) The tax issues also had the potential to have a significant adverse effect on

the reputation of both regulated firms. Indeed, Mr Käärmann’s subsequent

inclusion on the Defaulters List attracted wide media attention. The tax issues

therefore fell for disclosure given their relevance and significance to the

Authority’s ongoing supervision of WAUK and WPL, and WAUK and WPL’s own

notification obligations as authorised firms.

2.12.
Mr Käärmann’s failure to notify the Authority of the tax issues during the Relevant

Period was in breach of Senior Manager Conduct Rule 4 (“SMCR 4”), which he was

required to comply with as SMF1 (Chief Executive) and SMF3 (Executive Director)

of WAUK. SMCR 4 requires that individuals must disclose appropriately any

information of which the Authority would reasonably expect notice. The Authority

expects self-notification by an Authority-approved senior manager of any matters

that may be significant to their fitness and propriety, which includes matters that

may have an adverse impact on their reputation and/or that of their firms.

2.13.
Mr Käärmann also did not disclose the tax issues to WAUK and WPL during the

Relevant Period. By not doing so, no one else at WAUK and WPL was able to assess

and subsequently notify the Authority of the tax issues, on behalf of the firms, in

accordance with the firms’ applicable notification requirements, including Principle

11 of the Authority’s Principles for Businesses (“the Principles”). Principle 11

requires firms to disclose to the Authority appropriately anything relating to the

firm of which the Authority would reasonably expect notice. Matters that firms

must notify to the Authority include any matter that may be significant to a

relevant person’s fitness and propriety, such as approved persons.

2.14.
The Authority considers that Mr Käärmann’s approach to his notification of the tax

issues was careless, as opposed to deliberate or reckless: he did not appropriately

consider the significance of the tax issues and whether a notification to the

Authority was required, which led to his failure to notify the Authority of the tax

issues. Throughout the Relevant Period, Mr Käärmann could have sought advice

in relation to whether the tax issues ought to be notified to the Authority, but he

failed to consider the tax issues in the context of his regulatory duties, wrongly

believing them to be personal matters that were unrelated to his fitness and

propriety.

2.15.
In failing to notify the Authority of the tax issues, Mr Käärmann’s actions fell below

the standards expected of those holding senior positions at firms authorised by

the Authority. Consequently, his inaction prevented the Authority from assessing

in real time what (if any) impact the tax issues might have on its operational

objectives, including whether there were steps it might wish to take in response.

It was wholly inappropriate for the tax issues to first come to the Authority’s

attention from a third party, and not from Mr Käärmann and/or WPL and WAUK.

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2.16.
Compliance with the relevant regulatory rules are ongoing obligations and high

standards are expected of authorised firms, approved persons and relevant

individuals at AEMIs, in particular senior personnel. A CEO, in particular, is

expected to set an example to their staff and their customers. Firms and relevant

individuals are required to assess whether a notification to the Authority is

required on a case-by-case basis. The Authority expects notice of any matters

that may be material to an individual’s fitness and propriety and their (or their

firm’s) reputation. Matters that fall for disclosure include (but are not limited to)

material adverse findings from, and/or penalties imposed by, a regulatory and/or

statutory body (such as HMRC).

2.17.
It is also imperative that relevant individuals give appropriate consideration to the

fact that their actions may not only have an adverse reputational and/or

regulatory impact on themselves, but also on their firms.

2.18.
For the reasons given in this Final Notice, the Authority hereby imposes on Mr

Käärmann a financial penalty of £350,000 pursuant to section 66 of the Act.

2.19.
This action advances the Authority’s operational objective of protecting and

enhancing the integrity of the UK financial system.

3
DEFINITIONS

3.1
The definitions below are used in this Notice:

“the Act” means the Financial Services and Markets Act 2000;

“AEMI” means an Authorised Electronic Money Institution, as defined in Regulation

2(1) of the EMRs;

“the Authority” means the Financial Conduct Authority;

“CEO” means Chief Executive Officer;

“CGT” means the capital gains tax due on the US$10m share disposal made by

Mr Käärmann during the 2017/18 tax year;

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"Code of Conduct” means part of the Authority’s Handbook in High Level

Standards, which includes rules for those performing senior management

functions;

“DEPP” means the Authority’s Decision Procedure and Penalties Manual, part of

the Handbook;

“the EMRs” means the Electronic Money Regulations 2011;

“the Handbook” means the collection of regulatory rules, manuals and guidance

issued by the Authority in its Handbook as in force during the Relevant Period;

“HMRC” means His Majesty’s Revenue and Customs;

“the HMRC Penalty” means the financial penalty imposed by HMRC on Mr

Käärmann in the sum of £365,651.21;

“Mr Käärmann” means Kristo Käärmann;

"the Defaulters List” means a list published by the HMRC from time to time of

those it considers to be deliberate tax defaulters;

“Principles” means the rules set out in the section of the Handbook entitled

“Principles for Businesses”;

“RDC” means the Regulatory Decisions Committee of the Authority;

“the Relevant Period” means the period from 7 February 2021 to 28 September

2021;

“the self-assessment” means Mr Käärmann’s HMRC self-assessment tax return for

the tax year 2017/18;

“the Share Disposal” means Mr Käärmann’s 2017/18 share disposal of

approximately US$10m;

“SMF1” means the Chief Executive controlled function;

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“SMF3” means the Executive Director controlled function;

“SMCR 4” means Senior Manager Conduct Rule 4 within the Authority’s Code of

Conduct;

“the tax issues” means HMRC’s determination that Mr Käärmann was a deliberate

tax defaulter, including the resulting HMRC Penalty, the possibility that he could

be added to the Defaulters List as a result, and the relevant circumstances

surrounding the above issues;

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);

“WAUK” means Wise Assets UK Ltd, which was formerly known as TINV Ltd until

16 October 2024. WAUK is a subsidiary of Wise and authorised by the Authority

under Part 4A of the Act since 25 February 2020;

“Wise” means Wise Plc, an unregulated company listed on the London Stock

Exchange; and

“WPL” means Wise Payments Ltd, a subsidiary of Wise and authorised as an AEMI

under the EMRs since 7 June 2018. It was formerly called TransferWise Limited

until 19 September 2021.

4
FACTS AND MATTERS

4.1
On 25 February 2020, Mr Käärmann was approved by the Authority to perform the

SMF1 and SMF3 roles at WAUK. Mr Käärmann is a director of WAUK and has been

since it was incorporated on 26 March 2019. He ceased to perform the SMF3 role

on 27 October 2022, but continues to perform the SMF1 role. Whilst approved as

a senior manager, Mr Käärmann has been obliged to abide by the Authority’s

regulatory requirements, including the Individual Conduct Rules and Senior

Manager Conduct Rules.

4.2
WAUK is an investment firm. It has been authorised by the Authority since 25

February 2020 under Part 4A of the Act to deal in and arrange investments and the

safeguarding of assets. WAUK has therefore been subject to the Authority’s

regulatory requirements, including the Principles, throughout the Relevant Period.

4.3
WPL is an AEMI. It has been authorised as such by the Authority since 7 June 2018

with permissions to issue electronic money and provide payment services. Mr

Käärmann is also a director of WPL and has been since it was incorporated on 31

March 2010. By virtue of being authorised as an AEMI, WPL has therefore been

subject to the Authority’s regulatory requirements applicable to AEMIs throughout

the Relevant Period. This includes the requirements set out in the Principles.

4.4
Mr Käärmann is also the CEO, director, co-founder, and majority shareholder of

Wise. Wise is the ultimate parent company of WAUK and WPL. Wise is listed on the

London Stock Exchange but not authorised by the Authority.

Mr Käärmann and HMRC

4.5
On 29 September 2017, Mr Käärmann made the Share Disposal, which gave rise

to a significant CGT liability of £720,425.80 for the 2017/2018 tax year. The

deadline for Mr Käärmann (or a representative on his behalf) to disclose the CGT

by filing a self-assessment was 31 January 2019. Mr Käärmann did not submit the

self-assessment or otherwise declare the Share Disposal to HMRC by this deadline.

4.6
In February 2019, HMRC identified the Share Disposal through open-source checks.

HMRC wrote to Mr Käärmann asking him to complete a self-assessment and to

disclose the Share Disposal, so that it could determine Mr Käärmann’s correct tax

liability.

4.7
On 9 July 2019, absent a response, HMRC wrote to Mr Käärmann informing him

that it had estimated how much tax he owed for the 2017/2018 tax year. This

included a sum for his CGT liability on the Share Disposal.

4.8
On 22 October 2019, Mr Käärmann paid the CGT as determined by HMRC.

4.9
On 25 June 2020, HMRC wrote to Mr Käärmann informing him that, because there

had been a failure by him to notify it of the CGT, it was conducting a compliance

check into his 2017/18 tax affairs. HMRC requested that Mr Käärmann provide

details of the circumstances that led to this failure, so it could consider whether

there was a reasonable excuse and whether a penalty should be imposed on him.

The letter was accompanied by a factsheet, which explained that if a penalty was

imposed, it might lead to Mr Käärmann having his name added to the Defaulters

List. Mr Käärmann did not respond to this letter and, during his interview with the

Authority, he explained that he did not respond to HMRC’s request because he did

not consider himself to have a reasonable excuse for his failure to declare the CGT

on time.

4.10
On 18 November 2020, HMRC wrote to Mr Käärmann informing him that it intended

to impose on him a penalty amounting to £365,651.21 (i.e. the HMRC Penalty).

The level of the penalty was based on a determination that HMRC considered him

to have deliberately failed to disclose the Share Disposal and pay the CGT liability

when due. Mr Käärmann was informed of this determination and given an

opportunity to provide comments if he disagreed with the proposed action, but did

not open the letter at the time and therefore did not respond.

4.11
On 24 December 2020, HMRC sent a ‘Notice to Pay’ letter to Mr Käärmann informing

him that it had imposed the HMRC Penalty as proposed in its letter of 18 November

2020. Mr Käärmann was required to pay the HMRC Penalty on or before 23 January

2021 and was also informed of his right to appeal. However, Mr Käärmann did not

open the letter at the time due to his absence abroad.

4.12
On 6 February 2021, Mr Käärmann returned to the UK having spent approximately

two months abroad. The following day, he opened and read the letters from HMRC

dated 18 November 2020 and 24 December 2020, which had previously been

unopened. He immediately paid most of the penalty that day with the remainder

shortly after, as soon as he was able to release the necessary funds. The Authority

considers that Mr Käärmann should have then made an immediate notification to

the Authority of the tax issues at this point.

4.13
On 8 July 2021 and 25 August 2021, respectively, HMRC sent letters to Mr

Käärmann informing him that it was considering adding him to the Defaulters List.

These letters gave Mr Käärmann an opportunity to provide comments if he

disagreed with the action being considered. Mr Käärmann did not receive these

letters as he had moved house at the end of March 2021 and the letters had been

sent to his previous address. He therefore did not reply to the letters. Mr Käärmann

did not have a postal redirect in place upon moving addresses and had not informed

HMRC of his new postal address.

4.14
On 22 September 2021, HMRC added Mr Käärmann to the Defaulters List. This was

a result of HMRC determining that Mr Käärmann’s failure to declare the CGT on the

Share Disposal had met the applicable threshold for publication on the Defaulters

List. The criteria for inclusion on the Defaulters List include if an individual has been

subject to: a tax penalty for deliberate failure to declare CGT; the tax penalty is in

consequence of an investigation; and that the potential lost revenue for HMRC

exceeds £25,000 or more in a tax year.

4.15
On 27 September 2021, the Authority was contacted by a journalist about Mr

Käärmann’s inclusion on the Defaulters List. The Authority had no knowledge of Mr

Käärmann’s tax issues prior to this. As such, the Authority contacted Wise for

comment on the same day. Wise replied saying they would look into the matter

and revert.

4.16
On 28 September 2021, Mr Käärmann emailed the Authority briefly stating he had

been added to the Defaulters List.

4.17
On 1 October 2021, Wise submitted a formal notification to the Authority, pursuant

to Principle 11, on behalf of WAUK and WPL. This disclosed brief details about Mr

Käärmann’s inclusion on the Defaulters List, and set out steps that Wise was taking

regarding the matter.

Mr Käärmann’s failure to notify the Authority of the tax issues

4.18
During his interview with the Authority, Mr Käärmann stated that 7 February 2021

was the date on which he had become aware of the HMRC Penalty: having opened

all the previous correspondence he had received, but not opened, from HMRC, after

which he immediately made a payment towards the HMRC Penalty.

4.19
The Authority therefore considers that from 7 February 2021, at the latest, Mr

Käärmann was aware of the tax issues, which were potentially significant to the

Authority’s assessment of his fitness and propriety (in accordance with FIT). They

were also potentially significant to the Authority’s supervision of WAUK and WPL

given the significant adverse effect the tax issues could have on their reputation

due to Mr Käärmann’s senior position at these firms.

4.20
As such, once Mr Käärmann became aware of the tax issues on 7 February 2021,

he was obliged to have notified the Authority of them in a timely and appropriate

manner in his capacity as a senior manager. He also should have reported the

matter to WAUK and WPL so that they could ensure appropriate notifications were

made to the Authority pursuant to their own regulatory obligations.

5 FAILINGS

5.1
The statutory and regulatory provisions relevant to this Notice are referred to in

5.2
SMCR 4 requires that the position holder must disclose appropriately any

information of which the Authority would reasonably expect notice. The Authority

would reasonably expect self-notification by a Authority-approved senior manager,

via the authorised firms for which they are approved or if necessary directly, of any

matters that may be significant to the Authority’s assessment of their fitness and

propriety, which includes but is not limited to matters that may have an adverse

impact on their reputation and/or that of their firms.

5.3
The tax issues fell for disclosure for the following reasons:

a) An adverse finding had been made against Mr Käärmann by another statutory

/ regulatory body, namely HMRC. The nature of the HMRC determination, the

fact that this was a deliberate tax default, the significant size of the resulting

HMRC Penalty, and the potential for public censure via inclusion on the

Defaulters List, meant the tax issues fell for disclosure to the Authority. This is

in accordance with FIT. The tax issues were relevant and significant to the

Authority’s real time assessment of Mr Käärmann’s fitness and propriety to

perform his senior manager role at WAUK, as well as perform his senior role at

WPL; and

b) The tax issues also had the potential to have a significant adverse effect on the

reputation of both regulated firms. Indeed, Mr Käärmann’s subsequent

inclusion on the Defaulters List attracted wide media attention. The tax issues

therefore fell for disclosure given their relevance and significance to the

Authority’s ongoing supervision of WAUK and WPL, and WAUK and WPL’s own

notification obligations as authorised firms.

5.4
Adverse findings by another regulatory and/or statutory body, such as HMRC, which

may include a significant penalty, is information of which the Authority would

reasonably expect to be notified. This includes notification of any relevant context

concerning the same. It is imperative therefore that individuals and firms are alert

to what the Authority expects them to notify it of, and that they self-notify promptly

and appropriately such matters to the Authority, or ensure that their firms make

such notifications, in line with their regulatory obligations. It is also imperative that

relevant individuals give appropriate consideration to the fact that their actions

may not only have an adverse reputational and/or regulatory impact on

themselves, but may also have an adverse impact on their firms. During his

interview with the Authority, Mr Käärmann accepted that being added to the

Defaulters List, which was a direct consequence of the tax issues, brought with it

reputational damage to himself, Wise (and by implication its subsidiaries, such as

WAUK and WPL), as well as to the wider financial system.

5.5
FIT makes clear that the following factors are the most important when considering

a person’s fitness: (1) honesty, integrity and reputation; (2) competence and

capability; and (3) financial soundness. Given the nature of the tax issues, such as

HMRC’s adverse determination and subsequent action taken by it as described

above, the tax issues may have been significant to the Authority’s assessment of

Mr Käärmann’s fitness and propriety.

5.6
Compliance with the relevant regulatory rules are ongoing obligations and high

standards are expected of authorised firms, approved persons and relevant

individuals at AEMIs, in particular senior personnel. CEOs for example are expected

to set an example to their staff. The Authority expects regulated firms and

applicable individuals to notify it of information that could have the potential of

impacting the individuals’ fitness and propriety and may by their nature have a

significant impact on the reputation of the individual and/or their firms. This is

imperative to allow the Authority to effectively supervise those it regulates and to

advance its strategic and operational objectives.

5.7
However, despite being aware of the tax issues for some 7 months, Mr Käärmann

failed to provide an appropriate self-notification to the Authority as an Authority-

approved senior manager at WAUK during the Relevant Period. During his interview

with the Authority, Mr Käärmann explained that he did not believe that he needed

to inform the Authority of the tax issues because his dealings with HMRC were in

his view a personal matter and therefore not relevant to WPL, WAUK or his fitness

and propriety.

5.8
The Authority considers that Mr Käärmann did not properly put his mind to whether

the Authority should have been notified of the tax issues, and that he should have

considered his disclosure obligations more carefully. In failing to notify the

Authority of the tax issues, Mr Käärmann prevented it from assessing in real time

during the Relevant Period:

a) what (if any) impact the tax issues might have in respect of the Authority’s

assessment of Mr Käärmann’s fitness and propriety, in accordance with FIT, and

in turn whether it impacted his positions at WAUK and WPL;

b) what adverse impact, if any, the tax issues may cause to WAUK and WPL, such

as harm to their reputation; and

c) whether there were any steps the Authority should take pursuant to its

operational objectives as a result.

5.9
Mr Käärmann should also have disclosed the tax issues to WAUK and WPL during

the Relevant Period, given their potential to have an impact on Mr Käärmann’s

fitness and propriety, as well as have a significant adverse effect on those firms’

reputation. By not doing so, no one else at WAUK and WPL was able to assess and

subsequently notify the Authority of the tax issues on behalf of the firms, in

accordance with the applicable notification requirements, including Principle 11 of

the Authority’s Principles for Businesses (“the Principles”). Principle 11 requires

firms to disclose to the Authority appropriately anything relating to the firm of

which the Authority would reasonably expect notice. The tax issues fell for

disclosure under this requirement.

5.10
For the reasons set out in this Notice, the Authority considers that Mr Käärmann

was careless, rather than deliberate or reckless, in approaching his disclosure

obligations as set out in this Notice. Mr Käärmann did not appropriately consider

the significance of the tax issues and whether a notification to the Authority was

required, which led to his subsequent failure to notify the Authority of them. Given

Mr Käärmann’s experience, knowledge and senior position, he ought to have

appreciated that the Authority would have reasonably expected to be notified of

the tax issues, in his personal capacity as a senior manager, and on behalf of WAUK

and WPL.

5.11
Further, given Mr Käärmaan’s access to advice throughout the Relevant Period, he

could have sought advice in relation to whether the tax issues ought to be notified

to the Authority if he was in any doubt, but he failed to do this.

5.12
By reason of the facts and matters set out above, whilst approved by the Authority

to perform the SMF1 and SMF3 roles at WAUK during the Relevant Period, Mr

Käärmaan’s conduct has fallen below the standards reasonably expected of those

holding his positions and he has consequently failed to comply with SMCR 4: by

failing to notify the Authority and otherwise disclose the tax issues, of which the

Authority would have reasonably expected notice.

6
SANCTION

Financial penalty

6.1
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5B sets out the details of the five-step framework that applies in

respect of financial penalties imposed on individuals in non-market abuse cases.

Step 1: disgorgement

6.2
Pursuant to DEPP 6.5B.1G, at Step 1, the Authority seeks to deprive an individual

of the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.3
The Authority has not identified any financial benefit that Mr Käärmann derived

directly from his breach.

6.4
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.5
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. That figure is based on a percentage of the

individual’s relevant income. The individual’s relevant income is the gross amount

of all benefits received by the individual from the employment in connection with

which the breach occurred, and for the period of the breach.

6.6
The period of Mr Käärmann’s breach was from 7 February 2021 to 28 September

2021. DEPP 6.5B.2G(2) states that where the breach lasted less than 12 months,

the relevant income will be that earned by the individual in the 12 months preceding

the end of the breach. The Authority considers Mr Käärmann’s relevant income for

this period to be £207,467. In deciding on the percentage of the relevant income

that forms the basis of the Step 2 figure, the Authority considers the seriousness

of the breach and chooses a percentage between 0% and 40%. This range is

divided into five fixed levels which represent, on a sliding scale, the seriousness of

the breach; the more serious the breach, the higher the level. For penalties imposed

on individuals in non-market abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.7
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly.

Nature of the breach

6.8
DEPP 6.5B.2G(9) sets out factors relating to the nature of the breach. The Authority

considers the following factors are relevant:

a) As a director and a senior individual at both WAUK and WPL, Mr Käärmann held

a prominent position within the electronic money industry (DEPP 6.5B.2G(9)(i));

b) As the CEO and director Mr Käärmann held a senior position in WAUK throughout

the Relevant Period (DEPP 6.5B.2G(9)(k)); and

c) Mr Käärmann failed to take any steps to notify the Authority of the tax issues

during the Relevant Period (DEPP 6.5B.2G(9)(n)).

Level of seriousness

6.9
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of these,

the Authority considers the following factors to be relevant:

a) Mr
Käärmann
held
a
prominent
position
within
the
industry
(DEPP

6.5B.2G(12)(f)).

6.10
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of

these, the Authority considers the following factors to be relevant:

a) The breach was committed negligently rather than deliberately or recklessly

(DEPP 6.5B.2G(13)(d)); and

b) Little, or no, profits were made or losses avoided as a result of the breach in this

Notice, either directly or indirectly (DEPP 6.5B.2G(13)(a)).

6.11
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 3 and so the Step 2 figure is 20% of £207,467.

6.12
Step 2 is therefore £41,493.

Step 3: mitigating and aggravating factors

6.13
Pursuant to DEPP 6.5B.3G(2), at Step 3 the Authority may increase or decrease

the amount of the financial penalty arrived at after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.14
The Authority has not identified any such factors.

6.15
Step 3 is therefore £41,493.

Step 4: adjustment for deterrence

6.16
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the individual who committed the breach, or others,

from committing further or similar breaches, then the Authority may increase the

penalty.

6.17
The Authority considers the following circumstances to be relevant when

considering an adjustment under Step 4:

a) The absolute value of the penalty is too small and unlikely to meet its

objective of credible deterrence, namely, to deter Mr Käärmann and/or others

who hold similar positions from committing similar or further breaches (DEPP

6.5B.4G(1)(a));

b) It is imperative that individuals are alert to what the Authority expects them

to disclose to it and that they self-notify promptly such matters to the

Authority, or ensure that their firms make such notifications in line with their

regulatory obligations to enable the Authority to supervise effectively those it

regulates (DEPP 6.5B.4G(1)(d)); and

c) Mr Käärmann is a high-net worth individual and a penalty based on his

relevant income alone will not act as a sufficient deterrent (DEPP

6.5B.4G(1)(e)).

6.18
The Authority therefore considers that in order to achieve credible deterrence the

Step 3 figure should be increased to £500,000.

6.19
Step 4 is therefore £500,000.

Step 5: settlement discount

6.20
Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty

is to be imposed agree the amount of the financial penalty and other terms, DEPP

6.7 provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

individual reached agreement. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.21
The Authority and Mr Käärmann reached agreement at Stage 1 of the settlement

process and so a 30% discount applies to the Step 4 figure.

6.22
Step 5 is therefore £350,000.

6.23
The Authority hereby imposes a total financial penalty of £350,000 on Mr

Käärmann for failing to comply with SMCR 4 as SMF1 (Chief Executive) and SMF3

(Executive Director) at WAUK.

7
PROCEDURAL MATTERS

7.1
This Notice is given to Mr Käärmann under and in accordance with section 390 of

the Act.

7.2
The following statutory rights are important.

Decision maker

7.3
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.4
The financial penalty must be paid in full by Mr Käärmann to the Authority no later

than 11 November 2024.

If the financial penalty is not paid

7.5
If all or any of the financial penalty is outstanding on 12 November 2024, the

Authority may recover the outstanding amount as a debt owed by Mr Käärmann

and due to the Authority.

7.6
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this notice relates. Under those provisions,

the Authority must publish such information about the matter to which this notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to you or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.7
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.8
For more information concerning this matter generally, contact Jeremy Parkinson

at
the
Authority
(direct
line:
020
7066
0224
/
email:

Jeremy.Parkinson@fca.org.uk).

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

RELEVANT STATUTORY PROVISIONS

1.1
The Authority’s statutory objectives are set out in section 1(B)(3) of the Act and

include the operational objective of enhancing the integrity of the UK financial

system (set out in section 1D of the Act).

1.2
Section 66 of the Act provides that the Authority may take action against a person

if it appears to the Authority that the person is guilty of misconduct and the

Authority is satisfied that it is appropriate in all the circumstances to take action

against him. Section 66A of the Act provides that for the purposes of action by the

Authority under section 66, a person is guilty of misconduct if any of conditions A

to C is met in relation to the person. Section 66A(2) provides that, under Condition

A, a person is guilty of misconduct if, while an approved person, he has failed to

comply with rules made by the Authority issued under section 64 of the Act.

1.3
Section 66(3)(b) of the Act provides that if the Authority is entitled to take action

against a person under section 66, it may impose a penalty on that person for such

sum as it considers appropriate and publish a statement of their misconduct.

RELEVANT REGULATORY PROVISIONS

Senior Manager Conduct Rules for Approval Persons

1.4
The Code of Conduct Sourcebook (“COCON”) was issued under section 64A of the

Act. COCON sets out the Authority’s Senior Manager Conduct Rules, which are the

fundamental obligations for senior manager approved persons under the regulatory

system. The relevant Senior Manager Conduct Rule is as follows:

Senior Manager Conduct Rule 4 is set out at COCON 2.2.4R – “You must disclose

appropriately any information of which the FCA… would reasonably expect notice”.

Principles for Businesses (“the Principles”)

1.5
The Principles are a general statement of the fundamental obligations of firms

under the regulatory system and are set out in the Authority’s Handbook. They

derive their authority from the Authority’s rule-making powers set out in the Act.

The relevant Principle is as follows:

Principle 11 provides: “A firm must deal with its regulators in an open and

cooperative way, and must disclose to the FCA appropriately anything relating to

the firm of which that regulator would reasonably expect notice”.

Decision Procedures and Penalties Manual (“DEPP”)

1.5
Chapter 6 of DEPP, which forms part of the Handbook, sets out the Authority’s

statement of policy with respect to the imposition and amount of financial penalties

under the Act. In particular, DEPP 6.5B sets out the five steps for penalties imposed

on individuals in a non-market abuse case.

The Enforcement Guide (“EG”)

1.6
The Enforcement Guide sets out the Authority’s approach to exercising its main

enforcement powers under the Act. Chapter 7 of the Enforcement Guide sets out

the Authority’s approach to exercising its power to impose a financial penalty. .

The Fit and Proper Guidance (“FIT”)

1.7
FIT sets out the factors that are the most important to the Authority when

considering a person’s fitness. These factors include:

a) FIT 2.1 – A person’s honesty, integrity and reputation;

b) FIT 2.2 – A person’s competence and capability; and

c) FIT 2.3 – A person’s financial soundness

1.8
FIT 2.1 sets out non-exhaustive matters that the Authority will consider when

assessing honesty, integrity and reputation. Pursuant to FIT 2.1.3G, such matters

include but are not limited to:

2) “any adverse finding… particularly in connection with investment or other

financial business, misconduct, fraud or the formation or management of a body

corporate”;

3) “whether the person has been the subject of,…any existing or previous

investigation or disciplinary proceedings, by …government bodies or agencies”;

4) “whether the person has been the subject of any proceedings of a disciplinary

nature… or has been notified of any potential proceedings or of any investigation

which might lead to those proceedings";

5) “whether the person has contravened any of the requirements of.… government

bodies or agencies”; and

10) “whether the person has been investigated, disciplined…or criticised by a

regulatory… body,…whether publicly or privately”


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